Opinion: New hope for oil production, higher prices still potential risks

The oil industry gets its groove back. One of the world’s largest oil companies says there’s reason to be optimistic about the prospects for oil production. The other says the energy markets are moving in the right direction.

Exxon Mobil reports earnings Tuesday morning and Chevron follows on Wednesday. The two competitors — both based in Texas — both spent the past few years failing to find profits. So it makes sense that both will cite low prices for oil as one of the primary reasons for their positive outlook this week.

Exxon reports that despite the poor price environment since 2014, its total earnings have risen in two consecutive quarters for the first time since the slump began. The oil company expects 2018 profits to be significantly higher than its previous record of $20.8 billion in 2015.

Chevron reports that its second-quarter profits rose nearly 50 percent from the year before, rising to $4.44 billion, its first net income of $4 billion in six years.

The news is largely expected, despite the fact that these two are gearing up for opposite categories of earnings, as the Associated Press points out.

“With its year-over-year performance, Exxon Mobil would not only break its long streak of declining profits, but would significantly outpace the five-year profit averages of its rival, Chevron,” reported the AP.

The reason for the increase? According to Exxon Mobil’s CEO Darren Woods, a renewed focus on production is saving money.

“We’re approaching each new project with high-quality risk that allows us to earn an attractive return on investment,” he said in a company statement.

Aside from the production boost, new efficiency programs have allowed the company to develop its reserves earlier and at lower costs, according to the AP.

The two competitors set a precedent for the oil sector in 2016 when they both reported their first-ever net profits since the crash in oil prices five years earlier.

Recently, oil prices have risen sharply, buoyed by the United States’ decision to impose sanctions on Iran. For most of this year, oil prices were sitting at their lowest levels since January 2016, due to worries that the United States would renew sanctions against countries purchasing oil from Iran. However, in August, US President Donald Trump said that he would not re-impose sanctions on Iran.

The first crude oil export from the United States to China took place just last week. It was produced from the controversial controversial drilling site in the United States’ vast shale fields in North Dakota.

Trump administration says it wants oil companies from both the United States and Europe to export oil from the United States to China, to try to decrease Chinese oil imports from Iran.

“I think the most important thing is we have released an enormous amount of product from these shale fields, some of the best in the world,” said Energy Secretary Rick Perry last week. “And it is so quick and so good, and so clean and so inexpensive that it is exciting, not because we want to get higher oil prices.”

The Chinese government also agreed to purchase US crude oil at the recent UN climate conference in Poland. But while that might seem like a sign of a warming in relations between the United States and China, that isn’t a sign that China is opening up to the United States.

“The on-again, off-again row between the world’s largest economies has morphed into an increasingly bitter and dangerous contest of wills,” explained Erik Brynjolfsson, a professor of management at the MIT Sloan School of Management and principal research scientist at the Center for Digital Business.

“As China and the U.S. engage in a furious game of one-upmanship, tariffs now and in the future will not only add new uncertainty to the outlook for global economic growth and financial markets but will also hinder the global expansion by depressing economic growth or spurring it downwards.”

By Alice Stewart, CNBC Contributor

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